Unless you’ve been living under a rock, you’ve read stories in the media about impossible sounding returns; 1,000% in one week! $10 million from a $1000 investment!
Since the market is so hot, the question is not if your clients are going to ask you about bitcoin, but when. The only problem is that bitcoin is well…there’s no other way to say it—confusing. Don’t worry though. Even people who are so-called experts in the field can have a hard time explaining it.
In order to help you sound a little more informed, we put together this handy cheat sheet. Pin it to your favorite Pinterest board or look it over before calling that software developer who hit you up on Zillow. Who knows, she may even share a sweet crypto investing tip.
Can My Buyers Purchase a Home With Bitcoin Yet?
Yes. However, almost all real estate transactions using bitcoin have used a service called bitpay to convert bitcoin to USD to transfer funds to the seller.
That said there have been a few “bitcoin to bitcoin” transactions. For example, a two bedroom condo sold for 17.741 bitcoin, the rough equivalent of $275,000 in cash. Both buyer and seller were represented by Brown Harris Steven’s Stephan Burke and Carol Cassis.
As far as an “bitcoin to bitcoin” transactions where title changes hands and the bitcoin is never converted into USD, we’re still not quite there yet. The sticking point is generally title companies and lawyers, both of whom are still somewhat reluctant to take the digital currency.
Where Bitcoin and blockchain show the most promise is for overseas transactions.
Over at the always excellent Mansion Global, EminGun Sirer, associate professor of computer science and co-director of the Initiative for Cryptocurrencies and Smart Contracts at Cornell University, weighed in on why crypto currencies are ideal for foreign buyers:
“Cryptocurrencies enable the quick, frictionless transfer of value across the globe, This enables someone in Russia to be able to easily send bitcoins to purchase land in Belize.”
Should I Advise my Seller Clients to Accept Bitcoin?
In today’s market, Bitcoin may not be ready for prime time, but there is one thing that is undeniable. Offering your listing for sale in Bitcoin will get you instant free press. Remember the first listings that had drone videos? Imagine that times ten. Here’s Seattle Realtor Sam Debord on the current state of Bitcoin sales:
“I’ll sell my house for bitcoin” is the latest marketing tactic, and it’s working… at least for publicity.”
In order to accept bitcoin, you can either have the seller transfer into USD, work with a title company that will accept bitcoin, or have a lawyer write up a contract that covers all risks from bitcoin. At this point, most people will avoid actually paying in bitcoin, but the free press might be a good trade off.
Can my Buyers Get a Loan with Bitcoin?
Yes. Startups like Unchained Capital allow people who hold bitcoin to borrow up to $1 million with no credit check and interest rates between 10% and 14%. However these are not long term loans, Unchained offers loan lengths ranging from 3 months to three years.
While not for everyone, hardcore bitcoin owners use services like this to get quick liquidity without cashing in their bitcoin portfolios. Think down payments, or maybe even bridge loans.
There Must be a Catch… is There Capital Gains Tax For Transferring Bitcoin to USD?
Yes. As of January 1st, 2018 the federal government considers cryptocurrency as property and anyone selling (or trading bitcoin for US dollars) will be hit with capital gains tax on the amount their bitcoins appreciated since they purchased or mined them.
Are Bitcoin and Blockchain The Same Thing?
No. While Bitcoin is a digital currency that you can exchange for goods and services, blockchain is the underlying technology that stores Bitcoin or other cryptocurrency transaction in a digital ledger.
Okay, Then What is Bitcoin Exactly?
Glad you asked! Bitcoin is a fully digital currency created in 2009 by an anonymous person who goes by Satoshi Nakamoto online. Like any other currency, bitcoin can be used to pay for goods and services, transfer funds, or as an investment. Currently, over 10,000 vendors accept bitcoin, from Microsoft and Expedia to small businesses.
The main difference between bitcoin and say, an ACH transfer through a traditional bank, is that there is no middleman in the transaction. The entire transaction from buyer to seller takes place on the bitcoin network. Since a bitcoin transaction bypasses the different bank policies, or different regional banking laws that are part of any other transaction, transfers are much quicker.
Since there is no bank or government to get in the way, Bitcoin can be a great way to transfer money or make purchases overseas. Foreign buyers may find bitcoin’s speed and simplicity ideal for buying property in the United States.
Bitcoin is an example of a fiat currency; its value is not backed up by gold or another tangible asset. Instead, Bitcoin relies on something called Blockchain to verify transactions.
Got it. So What’s Blockchain?
Although blockchain is very complex, the best way to describe it to your clients is to compare it to ACH, the technology that lets you “wire” money from one bank to another. The main difference is that blockchain does not rely on banks to verify transactions have been completed. Instead, once a transaction is completed it is stored in an encrypted digital ledger that is distributed among everyone on the blockchain.
What makes blockchain so powerful is that the ledger is stored on every single computer (node) in the system. This makes faking a transaction virtually impossible. Since the blockchain is extremely secure, it has many applications beyond verifying and storing bitcoin transactions. Everything from contracts to voting records can theoretically stored on blockchain.
Which Technology Will Have a Bigger Impact in the Real Estate Market, Bitcoin or Blockchain?
For most experts, blockchain will have a bigger impact on real estate than Bitcoin or other cryptocurrencies. Here’s why: Transaction speed is not a very pressing problem for real estate transactions, but record keeping and middlemen are. Here’s Jason Shepherd, co-founder of Atlas Real Estate Group on why he thinks blockchain technology, particularly smart contracts and other applications built on Ethereum, will change the real estate market:
“It is important to separate the cryptocurrency from the underlying blockchain technology when discussing real estate disruption…The disruption in real estate will come from the blockchain technology (distributed ledger) and smart contracts like those found on the Ethereum platform.”
Awesome! So What Are Smart Contracts?
Smart contracts are contracts between two parties that are verified and stored on the blockchain. Today, most smart contracts are built with the blockchain protocol behind Ethereum, another cryptocurrency.
The main benefit behind smart contracts is that there is no need for a middleman in the transaction. Everything is verified and stored on the blockchain.
In the future, blockchain can be used to store records of a transaction all the way from a blockchain enabled MLS, to escrow, inspections, title, and sales contracts. Leases, and other commercial real estate contracts could also be on the blockchain.
To learn more about smart contracts, check out this excellent guide over on Block Geeks.
Sweet! What is This “Mining” for Bitcoins I Keep Hearing About?
Okay, from here on in, the process gets a bit more technical, and harder to explain. Remember how we talked about how transactions on the blockchain are verified by other users? Well, Bitcoin mining is the process that verifies transactions and adds them to the public ledger. If you’re looking for a more thorough explanation of the process check out Duncan Elm’s great (and easy to understand) video on the process below:
What Advantages do Other Cryptocurrencies like Ethereum, Litecoin or Ripple Have Over Bitcoin?
Okay, now we’re getting a little too far into the weeds. Worse, the crypto industry changes so fast that by the time you read this something will have inevitably changed. If you’re feeling brave, check out this cool infographic from Visual Capitalist:
Where 12 Real Estate Experts Think Bitcoin is Heading
No matter how much you fight it, Bitcoin and the blockchain technology it runs on will revolutionize the real estate industry. This industry is moving faster than any recent technology that I can remember so keeping informed on new innovations and regulations is key.
Useful Real Estate Bitcoin & Cryptocurrency Links
Here are a few useful links to stay informed and avoid sounding like a dinosaur.